A sell-off in long-term US debt rippled through global markets on Friday as escalating Middle East conflict drove oil prices higher and stoked expectations that the Federal Reserve would raise interest rates to combat inflation. Yields on 30-year US bonds climbed to 5.38 per cent, the highest in nearly two decades, while 10-year Treasury yields reached 4.97 per cent. Brent crude traded around $107.70 a barrel after Iran-backed Houthi rebels seized the Yemeni port of Mocha and advanced toward the Bab al-Mandeb Strait, a critical chokepoint for global energy trade.

"Iran's control over the southern outlets of the Red Sea is to put more pressure on the global energy market," said Tai Hui, chief Asia-Pacific market strategist at JPMorgan Asset Management. "In the near term, everything is being driven by energy prices," added Ian Samson, a portfolio manager at Fidelity.

Asian markets fell sharply, with South Korea's Kospi and Japan's Nikkei 225 each dropping 2.6 per cent. The probability of a Fed rate hike rose to about 70 per cent, up from 60 per cent the previous day. Kevin Warsh, former Fed governor, has advocated abandoning forward guidance, adding to bond market anxiety.

An underwhelming reception to Scott Bessent's $6 billion bond buyback program disappointed investors, with Vincent Chung of T Rowe Price noting that markets now demand over-delivery on expectations.